Prenda Loses Again: Minnesota Appeals Court Upholds Sanctions

from the we're-waiting-for-the-truth-to-come-out dept

Almost exactly a year ago, we wrote about Team Prenda being ordered to pay another $64k in attorneys' fees in one of its many cases. This one involved Prenda, along with Paul Hansmeier's "Alpha Law Firm" and local Minnesota lawyer Michael Dugas supposedly representing a company named Guava, suing a bunch of folks in Minnesota state court. The case had taken quite a twist when defendant Spencer Merkel revealed how he'd made a deal to take a dive in the case. That is, he'd been hit with a standard Prenda threat letter concerning "Hard Drive Productions" content, and when he told them he couldn't pay, someone from Prenda made a "deal" with him in which he'd get sued, and would agree to give up hit Bittorrent logs during discovery and then have the case dismissed. Team Prenda needed the logs to find more people to shake down, and most likely wanted to use the case as an "example" that it was okay for them to get logs through these very, very questionable lawsuits.

Except, somewhere along the way the court noticed that it was a bogus lawsuit, and that resulted in the order to pay $64k. Team Prenda appealed, and... have lost again as the Minnesota state court of appeals has, like nearly every other court, seen right through the Prenda scam.

We have carefully reviewed the record, and we conclude that the district court did not abuse its discretion in imposing attorney-fee sanctions against appellants. The district court found that appellants initiated and pursued this litigation in bad faith, that the only purpose of the litigation was “to harass and burden Non-Parties through obtaining IP addresses to pursue possible settlement rather than proceed with potentially embarrassing litigation regarding downloading pornographic movies.” This is an improper use of the judicial system.

As per usual, Team Prenda throws a lot of crap at the wall, hoping something will stick. None of it does. First, they claimed -- as they always do -- a failure of due process. The court brushes that aside and shows that there was plenty of due process, even if some of it could have been slightly clearer. Next, Team Prenda claims there's not enough evidence for "bad faith." The court has no problem rejecting that one quickly:

Although the record in this case was not fully developed because appellants voluntarily dismissed the underlying action before it could be considered on the merits, it includes sufficient evidence to support the district court’s finding. The evidence includes Merkel’s affidavit testimony that he received a letter from Prenda Law threatening suit on behalf of its client, Hard Drives; he made arrangements with someone named “Michael” or “Mike” at Prenda Law for an alternative settlement arrangement, including his consent to be sued in Minnesota; Prenda Law referred him to pro bono counsel; Hard Drives would dismiss the suit after Merkel provided his BitTorrent log; and he was surprised to be sued by Guava, rather than Hard Drives. The evidence also includes Morrison’s testimony that Merkel was referred to her by Hansmeier and Dugas; that she expected a lawsuit to be filed by Hard Drives, rather than Guava; and “[t]here’s been some bait and switch you might call it in this case.” And the evidence includes the facts that (a) despite repeated questioning by the district court regarding Guava’s corporate status, appellants failed to file a certificate of authority or provide any evidence regarding Guava’s incorporation, its officers, or its business operations, and (b) despite Merkel’s alleged involvement in a hacking conspiracy, appellants sought no discovery from Merkel during the pendency of the litigation. This evidence, taken together, amply supports the finding that appellants had no good-faith basis for this litigation....

Appellants assert that the district court erred by relying on the communications between Merkel and Prenda Law relating to claims by Hard Drives, arguing that there is no evidence of a connection to this action. But the district court found a connection, and there is evidence in the record to support that finding. “Michael” at Prenda Law offered to refer Merkel to Minnesota attorney, Morrison. Morrison testified that she received the referral from Hansmeier and Dugas; Hansmeier filed a notice of appearance identifying himself as “of counsel” to Prenda Law, and Dugas submitted a declaration in this matter identifying himself as the only “‘Mike or Michael’” at either Alpha Law Firm LLC or Prenda Law, Inc.” Dugas denied representing Hard Drives or being involved in the settlement agreement between Merkel and Hard Drives. But the district court rejected this assertion as incredible, and we will not disturb that credibility determination.

There's a funny bit where Team Prenda tries to claim that originally the court thought the case was brought in good faith, so the later bad faith determination shouldn't count. The appeals court is, again, not impressed:

We reject this argument as circular and unpersuasive. The district court’s initial determination that Guava demonstrated that the information it sought was relevant and material did not preclude it from later—on being made more fully informed of the facts—finding that appellants were acting in bad faith.

Team Prenda also protested the $64k amount. But, again, their arguments fall (mostly) flat. The court basically says the amount is enough, as is the requirement that the lawyers file a $10k bond before filing any more lawsuits, but there was one procedural issue, concerning filing a Minnesota "certificate of authority" that was improperly presented in the lower court ruling, so the appeals court fixes that. It's a meaningless issue, though.

Finally, Team Prenda argues that sanctions can't be applied because they had voluntarily dismissed the lawsuit already. No go:

Lastly, appellants assert that the district court was precluded from awarding sanctions after the action had been voluntarily dismissed, citing such a limitation in the district court’s authority [citing laws and caselaw that say] “motions for sanctions brought after the conclusion of the trial must be rejected precisely because the offending party is unable to withdraw the improper papers or otherwise rectify the situation”). But the district court’s inherent authority to impose sanctions is not so circumscribed. See, e.g., Brickwood Contractors, Inc. v. Datanet Eng'g, Inc., 369 F.3d 385, 389 n.2 (4th Cir. 2004) explaining that “failure to comply with the safe-harbor provisions would have no effect on the court’s authority to . . . impose sanctions within its inherent power”).

So, once again, an appeal by Team Prenda falls totally and completely flat. And they need to pay up.

Filed Under: michael dugas, minnesota, paul hansmeier, spencer merkel
Companies: af holdings, alpha law firm, guava, hard drive productions, prenda, prenda law

Prenda Loses Big Again; Court Orders It To Pay Back Settlement Money, Refers To Law Enforcement

from the and-another-one dept

And here we go again. In yet another Prenda court case, Team Prenda has lost big. These are the cases in Minnesota that were reopened earlier this year, after the court became aware of Judge Wright's ruling in California, showing how Paul Hansmeier, John Steele, Paul Duffy and Mark Lutz appeared to be engaged in fraud on the court. In August, the magistrate judge assigned to review the cases, Franklin Noel, started demanding real answers to questions -- answers which never came.

Instead, we got a hearing in Minnesota that revealed some explosive new info, while Mark Lutz disappeared never to be heard from again. While Hansmseier and Duffy were never able to produce Lutz or answers to Judge Noel's questions, they did try to get Judge Noel kicked off the case.

None of the above strategies worked. At all. Judge Noel today not only rejected the request to pull him off the case, but also slammed Team Prenda, yet again, ordered them to pay back all the settlement money they got from the specific cases involved and then referred the case to law enforcement to look into the activities of Hansmeier, Steele, Duffy and Lutz. While he notes there are other issues being dealt with elsewhere, the main focus of Noel's inquiry was the legitimacy of Alan Cooper's signature -- and Judge Noel concludes, as have multiple other courts, that Cooper did not sign the document. And he's pretty thorough about it. He notes that AF Holdings, the shell company in question here, "failed to meet its burden of proving the authenticity of the copyright-assignment agreements."

Even more specifically, Judge Noel says that he thinks Steele lied on the stand:

Based upon Cooper’s side of these two conversations, Steele testified that it was his “understanding that he [Cooper] had given authority to Mark and his people if he wasn’t available, that he could sign the various documents as long as he understood what the document related to . . . .” Finding Steele’s testimony regarding his “understanding” of an agreement between Cooper and Lutz to be vague, the Court asked directly, “Did you hear Mr. Cooper give Mr. Lutz authority or permission to sign his name to documents?” Steele replied “yes.” The Court expressly disbelieves Steele’s testimony in this regard.

Noel goes on to point out that AF Holdings failed to produce an officer of the company who was "capable of testifying to the authenticity of each copyright-assignment agreement." He doesn't make much of Lutz's not appearance (and subsequent disappearance) other than mentioning that Lutz did not appear.

In the end, the court finds that fraud was committed on the court and orders the return of all the settlement money and the payment of attorneys' fees, which should add some more to the top of what Duffy, Hansmeier and Steele have on their ever-growing tab. The court also notes that it would be a waste of its time to "untangle the relationship between Hansmeier, Steele, Duffy, Dugas, Lutz and Prenda Law, on the one hand--and the Plaintiff AF Holdings, LLC., on the other." Instead, "such investigation can more effectively be conducted by federal law enforcement...." While it's likely federal law enforcement was already looking into all of this after Judge Wright alerted them to the case, having another judge make a similar recommendation can't hurt (well, unless you're Team Prenda. Then it hurts).

Filed Under: alan cooper, franklin noel, john steele, mark lutz, michael dugas, paul duffy, paul hansmeier
Companies: af holdings, prenda, prenda law

Courts Start Demanding Actual Answers From Team Prenda

from the and-on-and-on dept

The saga of Team Prenda continues, as courts in two of the Prenda cases we've been following have shown that they're getting pretty tired with Team Prenda's attempts to dance around the issues. First up, we've got the various AF Holdings cases up in Minnesota. If you don't recall, these cases had been dismissed, but after the court learned about some of Team Prenda's antics, it reopened the case with an eye towards determining if Team Prenda was guilty of fraud on the court in coaxing settlements out of people on a faulty or illegal basis. Amusingly, late last week, Paul Hansmeier, sticking to Team Prenda's ridiculous strategy of "whenever we're completely backed into a corner, charge!" filed a notice claiming that AF Holdings intended to reopen the original cases. That is, he's now claiming that because magistrate judge Franklin Noel is investigating them for fraud in the original cases, they now want to continue to "sue" people for infringement to show how "legitimate" their cases really were. The notice is worth reading, mainly for the comedic value. Hansmeier claims that Alan Cooper is mentally unstable and was trying to extort money from John Steele. Also, that there was no forgery of Cooper's signature, but rather Cooper "repudiating" his association with AF Holdings.

Of course, the main reason for making this filing isn't to reopen the cases, or to make laughable claims about Alan Cooper, but rather this:

However, Plaintiff has reached the outer-limits of what it can learn without the coercive power of formal discovery. As such, Plaintiff respectfully requests the Court to issue an order scheduling a Rule 26(f) conference so it resolve this matter as quickly as possible.

Basically, it's Paul Hansmeier asking the court for a fishing expedition against Cooper and his lawyer Paul Godfread. It's hard to see this as anything more than an attempt to be a nuisance.

However, it seems highly unlikely that magistrate judge Noel is buying anything that Hansmeier is selling. Instead, his latest order shows that he's getting pretty damn tired of Team Prenda's runaround. It makes no mention of Hansmeier's filing, denies the local counsel Michael Dugas' request to be dropped from the case (noting that he signed the forged papers), repeats the findings of Judge Wright in California, and then orders AF Holdings/Team Prenda to explain why Judge Wright's findings shouldn't apply equally to these cases:

The plaintiff shall file a memorandum of law on or before August 26, 2013 showing cause as to why Judge Wright's factual findings are not binding against it in these cases under the common law doctrine of issue preclusion. See, e.g., Bechtold v. City of Rosemount, 104 F.3d 1062, 1066-67 (8th Cir. 1997) (issue preclusion appropriate under Minnesota law if (1) the issues are identical; (2) the prior adjudication ended with a final judgment on the merits; (3) the plaintiff was a party to the prior adjudication; and (4) the plaintiff was given a full and fair opportunity to be heard on the adjudicated issue).

The Clerk of Court shall correct the docket to reflect that Mr. Michael K. Dugas remains counsel of record for the plaintiff. Although he filed a notice of withdrawal and substitution, his withdrawal was not effective upon filing under Local Rule 83.7(b) because it would delay the progress of this case. He signed the complaint to which the forged documents were attached. If Mr. Dugas wishes to withdraw as counsel of record for the plaintiff, he must proceed in accordance with Local Rule 83.7(c) and establish good cause to do so.

In other words, Team Prenda's can't just ignore Judge Wright's ruling here, and it certainly sounds like Judge Noel has no time for Hansmeier's plans to play discovery games.

Meanwhile, back in the Navasca case in Northern California, it appears that the recent sanctions against Team Prenda that Judge Edward Chen awarded have been ignored by Team Prenda, and a magistrate judge in that court, Nador Vadas, would like to know why. Oh, that's not all Judge Vadas would like to know. It appears that Judge Vadas is now taking a special interest in the now-infamous Paul Hansmeier deposition from this case, which was one of the key documents that convinced Judge Wright that Prenda was up to no good. Judge Vadas has some questions he'd like AF Holdings to answer, and they are the kinds of questions that Paul Hansmeier, Paul Duffy, John Steele and Mark Lutz probably don't want to answer about who actually is behind AF Holdings and the various "trusts" such as Salt Marsh:

Hansmeier testified that AF Holdings was owned by a trust, but he could not testify about the name of the trust.... In a May 2, 2013 filing, Mark Lutz, who identifies himself as someone who “manage[s] various adult content related companies, including AF Holdings LLC,” declared that “Salt Marsh is the name of the trust that owns AF Holdings”.... At the hearing, AF Holdings should be prepared to identify the name of its owner and any entity or person having a financial interest in the outcome of this case, beyond Salt Marsh.

AF Holdings should be prepared to explain why it represented that there were “no known persons, associations of persons, firms, partnerships, corporations (including parent corporations), or other entities (other than the parties themselves) that may have personal or affiliated financial interest in the subject matter in controversy, or any other kind of interest that could be substantially affected by the outcome of the proceeding other than the parties.” Doc. No. 2 (Certificate of Interested Entities).

AF Holdings should be prepared to explain why Paul Hansmeier was designated as its 30(b)(6) deponent instead of Mark Lutz.

Paul Hansmeier was unable to testify about “the exact mechanisms by which the money goes from” to AF Holdings from the law firms that represent it.... AF Holdings should be prepared to explain these “exact mechanisms” at the hearing, and also should be prepared to provide an accounting of the funds it has received from persons it has sued or threatened to sue for copyright violation based on allegedly illegal downloading of its adult titles.

Those all seem like important questions. Questions that would be easy to answer if there were nothing nefarious going on, but which Team Prenda has avoided answering in any meaningful way for months. The hearing at which they need to have such answers ready will be on August 28th. I imagine it will be quite interesting.

Filed Under: alan cooper, franklin noel, joe navasca, john steele, mark lutz, michael dugas, nador vadas, paul duffy, paul hansmeier
Companies: af holdings, prenda, prenda law

Team Prenda Ordered To Pay Yet Another $64k In Yet Another Case

from the it's-adding-up dept

The bill for Team Prenda to pay out to opposing attorneys keeps getting bigger. Over in Minnesota in Guava LLC v. Merkel, a case that had fallen off the radar for many, the judge has ordered Guava, local lawyer Michael Dugas and Paul Hansmeier's Alpha Law Firm to cough up $63,367.02 in attorneys' fees. If you don't recall, Spencer Merkel, the defendant in this case dropped quite a bombshell in this case back in January, in which he revealed that he had agreed to take a dive for Prenda. As his declaration noted:

Michael offered me a settlement deal. The deal consisted of the following parts:

a. I would agree to be sued.

b. Prenda would ask for, and I would provide, a copy of the bit-torrent log from my computer. The excuse for gathering this log is that it would corroborate the IP address evidence that they had already gathered through the use of Prenda's sottware.

c. Prenda would, upon receipt of the information, dismiss the case against me.

4. In discussion of the settlement, Michael stated that he did not know of any pro bono attorneys in Oregon, but could provide the name of an attorney who might take my case in Minnesota. Because I cannot afford to pay an attorney, I agreed to be sued in the state of Minnesota. I then retained my attorney, Trina Morrison, based on the information provided to me by Prenda Law.

In that same filing, he also notes that while he was making this deal all of the communication was from "Prenda" law, and he was surprised when it was Hansmeier's Alpha Law Firm that actually sued.

It would appear that the judge in this case, Tanya Bransford, has a pretty good understanding of the scam being pulled as well, because she also says anyone associated with these firms are no longer allowed to file these kinds of cases without first posting a $10,000 bond:

Plaintiff Guava LLC, Michael K. Dugas, Esq., Alpha Law Firm LLC and any of their agents, officers, directors, employees, representatives, affiliates, and successors, are hereby enjoined from filing any future civil action against the John Does or the ISPs, without first posting a bond with the Court in the amount of $10,000, or such other amount as the Court deems appropriate, and without first obtaining a certificate of authority from the Minnesota Secretary of State.

This is just the basic order in the case, though a full explanation is forthcoming. I imagine it will be a worthwhile read.

Filed Under: michael dugas, paul hansmeier, spencer merkel
Companies: alpha law firm, guava llc, prenda, prenda law

Another Judge Figures Out What Prenda Is Up To, Reopens Closed Case, Demands Information On Settlements

from the well,-look-at-that dept

It would appear that yet another federal judge has taken an interest in what Prenda Law was up to for the past few years. Over in Minnesota, US Magistrate Judge Franklin Noel has reopened a case that Prenda had dismissed and ordered Prenda's local counsel, Michael Dugas, to supply an awful lot of information about the settlements they collected from people during the shakedown. The court points out:

In light of Mr.Cooper's letter and Judge Wright's order, it appears to the Court that the plaintiff has relied on forged documents in securing multiple court orders authorizing the discovery of information that, in turn, led to settlements in the above-captioned cases.

Because of that, it's reopening the case:

The Court agrees with the reasoning of Pino and concludes--based on its own interpretation of Rule 60(b)(3) and Rule 60(d)(3)--that it has jurisdiction to strike a plaintiff's notice of voluntary dismissal, reopen the case, and award appropriate relief when allegations of a possible fraud on the court come to its attention. This interpretation of Rule 60 is necessary to preserve the integrity the of judicial system.

All three elements of the Pino test are met here: (1) the plaintiff attached a fraudulent document to the complaint; (2) the Court relied upon that document in authorizing the discovery of internet subscriber information--information the plaintiff was not entitled to receive absent a court order; and (3) after obtaining the discovery (which--at least as far as the Court is aware--is the only relief the plaintiff ever seeks in these cases), the plaintiff settled and voluntarily dismissed all of these cases.

Given that, the court has ordered Dugas to supply the details of everyone in the case who settled, including their contact info, their attorneys' contact info, the exact terms of the settlement agreements, "including to whom any money was paid and the manner of payment" while also saying that Dugas needs to supply all of those who settled (and their attorneys) with Judge Wright's order in California describing Prenda's scheme. Given the identifying info, this will be filed under seal, but Dugas has only five days to do so. Either way, it seems that more and more judges are aware of what happened, and they're even going back into old cases to explore...

Filed Under: alan cooper, franklin noel, michael dugas, minnesota, otis wright, prenda
Companies: prenda, prenda law